Thincats logo
  • By The ThinCats Team
  • Blog
  • 15 March 2024
  • 4 mins read

British Business Bank report confirms widening range of finance options for SMEs as new entrants replace traditional lenders

In its most recent report “Small Business Finance Markets 2023/24” released in March, the BBB took the opportunity to examine how the finance market for small businesses has changed over the last 10 years.

It shows that the once dominant handful of big high street lenders, which had stifled access to finance during the global financial crisis, have been overtaken by a much wider range of new lenders offering a more diverse range of services. As the range of finance options open to business has grown, so too has the network of brokers and advisers helping businesses find the best solution for their particular needs.

In pursuit of its mission of “helping the mid-sized thrive”, ThinCats has been at the forefront of this change, focusing on providing flexible debt solutions from £1m-£15m for mid-sized SMEs.

It’s worth pointing out that the BBB report covers the entire universe of 5.5 million SMEs including approximately 500,000 mid-sized businesses. Although the report includes many aspects of small business finance (read the full report here) we thought it would be useful to highlight its main findings in relation to the provision of debt funding.

The report looked at two time periods; market developments over the last decade (2014-2023) and market changes over the last year:

Market developments over the last decade (2014-2023)   

  • Where lending has been provided by banks, the share of smaller business bank lending (excluding overdrafts) held by the big banks fell from 63% in 2014 to 41% in 2023.  Since 2021 challenger banks collectively have a great market share than the big banks. Despite this change, the influence of the big banks remains significant given that 51% of smaller business only approach their main bank when seeking finance and the big banks generally offer a full range of services including asset finance and invoice finance.
  • Non-bank lenders have become part of the mainstream able to reach parts of the market more traditional lenders cannot or do not wish to reach.
  • In addition to new entrants offering new products, initiatives such as Open Banking and increasing digitalisation have accelerated innovation in the provision of finance solutions. It is expected that the use of predictive and generative AI will grow considerably over the next decade which should increase availability and lower the cost of finance to smaller businesses.

Market changes over the last year (2023) 

  • The use of external finance by small businesses saw a consistent rise over the year from 41% in Q1 to 50% in Q3. Working capital was seen as the main reason for seeking finance cited by 58% of smaller businesses. Greater use of credit card and overdraft facilities also point to increasing pressure on small business cash flow.
  • Businesses are more likely to shop around for finance. Since the pandemic, where lenders offering the Government backed schemes dominated, the number of finance providers being considered by smaller businesses has continued to increase. 2023 saw 15% of businesses considering 4 or more finance providers compared to 8% in 2022.
  • Gross lending by banks to SMEs was down by 9% compared to 2022. The success rate for loan applications to the big 5 banks saw a drop to below 50% compared to pre-pandemic levels of 82%.
  • Gross lending by challenger and specialist banks was down 2% on 2022 although this represented a record 59% of total bank lending highlighting the continuing trend away from the big 5 banks.
  • Of those alternative lenders that have so far published data for 2023, the value of funding provided in 2023 increased by approximately 15% compared to 2022.
  • For ThinCats the increase on 2022 funding values was 31% to a record £395 million in 2023 reflecting its increasing market share among alternative lenders and across the wider market.